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May 2018 INDUSTRIAL POLICY DOSSIER

Industry Report Industrial production and trade in the individual industries

In 2018, we expect manufacturing output in Germany to increase by 2.5 percent. German industry is a leading force in Europe’s economic recovery. The strongly export-oriented manufacturing sector is also benefiting from the pick-up in global trade.

Global industrial production increased by 3.5 percent overall compared to the previous year. The 3.1 percent increase in production was the strongest growth seen since 2010, while production in emerging economies rose by 3.9 percent.

German exports are estimated to increase by three percent in 2018. Including the trade of goods and export of services, we expect exports to increase by five percent in real terms.

Global exports increased by 4.4 percent in 2017. Advanced economies contributed more to the growth of exports than emerging economies for the first time since 2011.


Industry Report | Industrial production and trade in the individual industries 17/05/2018

Content

Global industrial production ................................................................................................................... 3 Industrial production in the advanced economies ................................................................................. 4 Industrial production in the emerging economies ................................................................................. 5 United Staates ....................................................................................................................................... 6 China ..................................................................................................................................................... 7 Japan ..................................................................................................................................................... 8 South Korea........................................................................................................................................... 9 European Union .................................................................................................................................. 10 Germany .............................................................................................................................................. 12 France ................................................................................................................................................. 13 Italy ...................................................................................................................................................... 14 Spain ................................................................................................................................................... 15 United Kingdom ................................................................................................................................... 16 Global trade ......................................................................................................................................... 17 Industrial sectors in Germany.............................................................................................................. 19 Aluminium industry: production levels for 2017 positive overall .......................................................... 19 Automotive industry ............................................................................................................................. 20 Construction industry: growth to continue in 2018 .............................................................................. 21 Building materials industry .................................................................................................................. 21 Chemical industry: strong performance in 2017 provides good basis for 2018 .................................. 22 German electrical and electronics industry ready for further growth following record year ................ 23 Foundry industry in advanced economic upturn ................................................................................. 24 Glass industry: positive economic trend confirmed ............................................................................. 25 Real estate .......................................................................................................................................... 25 Ceramics industry ................................................................................................................................ 26 Machinery production: 2017 first year of upturn .................................................................................. 27 Nonferrous metal industry ................................................................................................................... 28 Steel and metal processing: 2017 successful year with production up six percent. Good start to 2018 with an increase of 5.7 percent ........................................................................................................... 29 Textile and clothing industry ................................................................................................................ 29 Imprint.................................................................................................................................................. 31

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Global industrial production According to figures from the CPB Netherlands Bureau for Economic Policy Analysis, global industrial production was up by 3.9 percent in the third quarter of 2017 and 3.8 percent in the fourth quarter, year on year. Quarterly growth has not been this solid since 2011. The annual growth rate of 3.6 percent was thus the highest in six years. In emerging economies, production rose by more than four percent in the first three quarters. The fourth quarter was weaker, bringing the increase in production for the year as a whole down to 3.9 percent. In the advanced economies, industrial production only started expanding significantly in the second half of the year. In the fourth quarter 2017, production was up by 4.2 percent thus even outperforming production in emerging economies. The annual growth rate of 3.2 percent was the highest since 2010. In 2018, production is set to continue expanding at a similar pace. In the first two months of the current year, global industrial production increased by 0.3 percent over the previous two months following seasonal and working-day adjustment. Year-on-year, production increased by 3.9 percent, close to the average annual growth rate of the previous year. The worldwide purchasing managers’ index for the manufacturing sector for the current quarter also indicates a robust acceleration in growth. The first three results recorded for 2018 are higher than the annual average for 2017 and indicate further expansion.

World: Industrial production*, Purchasing Managers Index 10

emerging economies advanced economies Purchasing Managers Index seasonally adjusted (right axis)

8

56

54

6 52 4 50 2

48

0

-2

46 2014

2015

2016

2017

2018

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis, own calculations

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Industrial production in the advanced economies Industrial production in the advanced economies has been rising steadily with growth rates of at least four percent year on year since the second quarter of 2017. The strongest expansion was seen in Japan, where industry increased production by 6.7 percent. Industrial production in the US also performed above average, growing by 4.1 percent. In the euro area, production increased by 3.8 percent. This is slightly below average, but, after all, industry is now expanding here for the eight consecutive year. The remaining advanced economies, which taken altogether are also in their eighth consecutive year of growth, recorded a 3.4 percent increase in production. In January and February 2018, production in the advanced economies continued to increase, rising 3.3 percent over the same period last year after seasonal and working-day adjustment. Almost all regions grew strongly. Japan’s industry, however, following the high increase in production last year, grew by only 0.6 percent. At 56.3 points in January 2018, the purchasing managers’ index for the manufacturing sector was above its highest level in 2017. While it dropped slightly in the next two months, down 1.4 index points to 54.9 points, this reading still indicates a further expansion in production.

Advanced economies: Industrial production*, Purchasing Managers Index other advanced economies Euro area Japan USA Purchasing Managers Index seasonally adjusted (right axis)

5

57

4

56

3

55

2

54

1

53

0

52

-1

51

-2

50 2014

2015

2016

2017

2018

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB), own calculations

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Industrial production in the emerging economies Emerging economies increased their industrial production by more than four percent in each of the first three quarters of 2017. Growth momentum tailed off slightly in the fourth quarter, dropping to 3.4 percent and thus pulling the increase for the year down to 3.9 percent. Growth was thus just below four percent for the third consecutive year. As in the previous years, the pace of growth was set by the Asian countries, where almost 57 percent of the total industrial production of newly industrialised countries is taking place. With an average annual growth rate of 5.7 percent, these countries once again served as the drivers of growth in 2017. In the Central and Eastern European countries, industrial production increased by 1.7 percent, improving on the previous year’s result of 1.1 percent. Industries in Africa and the Middle East have been expanding for the fourth consecutive year now, although the 1.6 increase in 2017 was much weaker than that of 2016 (up 2.9 percent). Industry in Latin America registered a contraction for the fourth year in a row, although at minus 0.8 percent the decline was much less pronounced than in the two previous years. In the first two months of the current year, industrial production in the emerging economies increased by 4.4 percent compared to the same period last year after seasonal and working-day adjustment. The Asian emerging economies recorded the highest growth, expanding by a robust 6.2 percent. While industry in Central and Eastern Europe, Africa and the Middle East expanded more than average last year, going up by over two percent, it continued its downward trend in Latin America, dropping by 0.8 percent. The purchasing managers’ index for manufacturing in the emerging economies dropped by 0.6 index points in March 2018, down to 51.3 points, but is still indicating further growth.

Emerging economies: Industrial production*, Purchasing Managers Index Africa/Middle East Latin America Central and Eastern Europe Asia Purchasing Managers Index seasonally adjusted (right axis)

5

54

4

53

3

52

2

51

1

50

0

49

-1

48 2014

2015

2016

2017

2018

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB), own calculations

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

United Staates After two slack years, US industrial production (industrial sector without construction) is back on the growth track. The upward trend already began in the first quarter of 2017 with a slight expansion of 0.2 percent and reached a year on year increase of three percent in the fourth quarter. The annual growth rate for 2017 was thus 1.6 percent. Manufacturing output in the US only managed an increase of 1.2 percent compared to the previous year. Among the individual industries in the manufacturing sector, machinery manufacturing recorded a robust increase of 6.5 percent following declines in the last two years of 7.9 and 7.7 percent respectively. The food industry continued its upward trend of the last four years, going up 4.1 percent. While the electrical and electronics industry grew at an average pace, the chemical industry posted only weak growth, going up by just 0.6 percent and, combined with pharmaceuticals, was even disappointing (down 1.7 percent). Vehicle manufacturing reduced its output for the first time in seven years, though only by 0.9 percent. US industry got off to a good start in 2018, recording an increase in production in the first quarter of 3.9 percent, year on year. The increase in the manufacturing sector of 2.2 percent was not quite as pronounced. Like last year, all of the larger industries increased production, with machinery manufacturing and the food industry topping the list. The purchasing managers’ index for manufacturing in the first three months of the year was higher than the highest level recorded last year, thus further underlining the dynamic growth seen at the start of the year.

United Staates: Industrial production*, Purchasing Managers Index 4

60

3

57

2 54

1 0

51

-1

48

-2 45

-3 -4

42 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

China Chinese industry was able to speed up growth substantially in spring 2017. Following annualised growth rates of 6.1 and 6.3 percent at the turn of the year 2016/2017, growth was already at 6.5 percent in February and March 2017. At the end of the first half of the year, Chinese industry was expanding at an annualised rate of 6.6 percent. The pace of economic growth then dwindled continuously in the second half of the year. From July 2017 to December 2017, growth rates dropped from 6.45 percent to 6.2 percent. At the beginning of 2018, production began to pick up again. After an increase of 6.35 percent in January compared to the same month last year, production increased by 6.5 percent in February and March 2018. Although the purchasing managers’ index for manufacturing slipped down 0.6 index points in March 2018 from its record level of February, it was still at 51.0 points and thus sufficiently high to signalise an increase in production in the spring quarter.

China: Industrial production*, Purchasing Managers Index 8

52

51 7

50 6 49

5 48

4

47 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Japan In Japan, industrial production has been rising steadily year on year since the third quarter of 2016. In the second quarter of 2017 production grew by 5.5 percent, the highest rise seen since 2014. Production continued to expand robustly throughout the second half of the year, rising by 4.4 percent in the third and 4.1 percent in the fourth quarter. After two years of pointing downwards, production increased in 2017 overall by 4.4 percent, the highest growth recorded in Japan since 2010. Among the individual industries, the chemical industry recorded the strongest growth at 7.1 percent. In combination with the production of pharmaceuticals, annual output in 2017 came in slightly lower at 5.9 percent. Machinery manufacturing notched up its best performance since 2010, going up by a solid 6.5 percent. Vehicle manufacturing did almost as well, increasing by 6.1 percent. The upturn in the electrical and electronics industry following five years of recession was short-lived. Production closed off 2017 with a decrease of 5.8 percent compared to the previous year. At the beginning of 2018, Japan’s industry again stepped up production. However, the resulting 2.2 percent increase in the first two months of the year is well below last year’s momentum at this time. With the exception of the electrical and electronics industry, production increased in all larger sectors. Both vehicle manufacturing, which rose 6.8 percent, and the chemical industry, up 5.7 percent, managed to sustain the robust growth rates of the previous year. The purchasing managers’ index for manufacturing, while 1.7 percentage points down from the record level at the start of the year, is still at 53.1 points, thus indicating an expansion of production in the spring quarter.

Japan: Industrial production*, Purchasing Managers Index 8

60

6

57

4 54 2 51 0 48 -2 45

-4 -6

42 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

South Korea Following a strong start to the year with an increase of five percent in the first quarter, manufacturing production lost steam in the further course of the year. In the middle of the year, production continued to expand at a lower rate, rising 1.9 percent in the second and 2.1 percent in the third quarter. In the fourth quarter production declined, dropping below the previous year’s level. All in all, production in 2017 grew 2.2 percent, one tenth of a percentage point higher than in 2016. Among the key industries, the electrical and electronics sector (up 3.9 percent) and the chemical industry (up 3.4 percent) recorded above-average growth. Taken together with pharmaceutical products, annual production in the chemical and pharmaceutical industry increased 3.8 percent. South Korea’s machinery manufacturers grew robustly in the first half of the year, indicating an end to the downturn that has afflicted the industry since 2013. However, after a weak second half year, annual production was 0.2 percentage points lower than the previous year. Vehicle manufacturers also produced 1.3 percent less than in 2016 overall. At the turn of the year 2017/2018, South Korean industry was clearly losing steam. Production decreased for three months in a row according to the two-month comparison year on year. The latest figures show production in vehicle and machinery manufacturing dropping substantially, decreases that cannot be compensated by the good figures from the chemical industry and the electrical and electronics industry. This is reflected by the purchasing managers’ index for manufacturing, which has been oscillating around the expansion threshold of 50 index points for quite some time. The index was at 49.1 in March, indicating a further decrease in production.

South Korea: Industrial production*, Purchasing Managers Index 53

6

4

51 2

49 0

47 -2

45

-4

2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

European Union In the European Union, industrial production (industrial sector without construction) grew steadily over the course of the year. After increasing by two percent in the first quarter compared to the previous year, growth accelerated up to 4.3 percent in the fourth quarter. Industrial production in the EU28 thus increased by a total of 3.2 percent. Following an increase of 1.6 percent in 2016, this was the fourth consecutive annual increase in production. Among the individual industries in the manufacturing sector, production in the electrical and electronics industry recorded the strongest increase with growth of 5.4 percent. Vehicle production expanded by 4.9 percent, just slightly outperforming machinery manufacturing which grew by 4.8 percent, finally putting an end to its sideways trend of the past three years. The chemical industry was not quite that buoyant, but did manage a 3.6 percent rise. Together with the slightly weaker pharmaceuticals business, the combined annual result for the industry was only a plus of 2.8 percent.

European Union: Industrial production*, Purchasing Managers Index 5

60

4

58

3

56

2

54

1

52

0

50 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

In 2017, industrial production increased substantially in all five major economies. German industry registered the strongest increase among this group of countries, rising 3.6 percent and thus matching the rate of growth in production for industry as a whole in the EU28. In Spain, industry expanded its production by 3.2 percent, which was also the growth rate of the euro area overall. In Italy, industry expanded at almost twice the previous year’s level, going up by 2.9 percent. The manufacturing sector in the United Kingdom increased production by 2.8 percent, thus for the first time returning to the

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

production level of 2008, a feat no other country has so far achieved except Germany in the year 2011. Of this group of five, French industry brought up the rear, but at 2.7 percent it was still clearly higher than last year. We are expecting the upturn in European industry to continue this year, although perhaps not with the vigorous growth rates seen in late 2017. The two-month comparison January/February 2018 shows an increase of 3.5 percent year on year after seasonal and working-day adjustment, following an increase of 4.3 percent in the previous two-month period. The purchasing managers’ index for industry in the European Union in March 2018 was 3.3 index points below its last peak in November 2017, but is still at 56.3 points and thus indicates a further expansion of production.

Development of the Industrial production* since 2014 114

112 Spain 110 Germany United Kingdom

108

Italy 106 France 104

102

100

98 2014

2015

2016

2017

2018

Production index: six-month average, after calendar and seasonal adjustments (2014=100) Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Germany In Germany, industrial production (industrial sector without construction) increased strongly last year. Following moderate growth of one percent in the first quarter of 2017, the pace of growth expanded substantially over the further course of the year. After an increase of three percent in the second quarter, production continued to gather momentum, exceeding five percent in the fourth quarter. Production thus increased by 3.3 percent in 2017 overall. This was the fourth consecutive increase and the strongest since 2011. Among the individual industries in the manufacturing sector, production in the electrical and electronics industry recorded the strongest increase with growth of 6.2 percent, following by vehicle production, which grew at an above-average rate of 3.8 percent. The chemical industry, including the production of pharmaceutical products, also grew at this rate. Basic chemical production rose at a below-average rate of 2.5 percent, following a downward trend in the last three years. Machinery manufacturing was able to put an end to its sideways trend of the last five years, ending the year with a solid increase in production of 3.6 percent. The high momentum of growth in the fourth quarter of 2017 was not sustained at the start of 2018, due no doubt partly to the outbreak of flu and the unusually high number of days lost to strikes. Nonetheless, the industrial sector and manufacturing still registered an increase in production of over four percent for the first two months of the year compared to the same period last year. While the purchasing managers’ index for manufacturing has dropped down from its record levels at the end of last year it is still indicating further growth. For 2018 overall, we expect manufacturing output to increase by 2.5 percent, based on the estimates of the individual industries.

Germany: Industrial production*, Purchasing Managers Index 8

64 62

6 60 58

4

56 2

54 52

0 50 -2

48 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

France In France, industrial production increased steadily throughout the year. Following a rise of 0.8 percent in the first quarter (year on year) growth picked up continuously, reaching 4.9 percent in the fourth quarter. For the year overall, industrial production increased 2.7 percent. This is the third consecutive increase in industrial production in France, following a 0.4 percent increase in 2016. Among the individual sectors, vehicle production was the dominant industry, as it had already been in 2016, growing by six percent. The industry increased its production for the fourth year in a row. Production of basic chemicals also increased at an above-average rate, going up 5.5 percent. In combination with the pharmaceuticals industry, the annual production increase of 5.6 percent for 2017 was even slightly higher. The electrical and electronics industry was able to increase production by 3.8 percent, following a marginal increase of 0.1 percent the previous year. Machinery production increased by 2.3 percent, thus ending its sustained sideways trend with a dip in production of 0.6 percent the previous year and stagnation in 2015. At the start of 2018, French industry continued its upward trend though with less momentum than in late 2017. Comparing January/February 2017 to the same period last year shows production in the industrial sector without construction increasing by 2.6 percent, with manufacturing output slightly higher, at three percent. The purchasing managers’ index for manufacturing is five index points lower than in December 2017, but at 53.7 points is still indicating further expansion in production.

France: Industrial production*, Purchasing Managers Index 6

59 57

4 55 2

53 51

0

49 -2 47 -4

45 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Italy Italy’s industry has been pointing upwards for three years. Following an increase of 1.8 percent in the first quarter compared to the previous year, quarterly growth continued to increase, reaching 3.9 percent in the third quarter 2017. The pace of growth dropped off in the fourth quarter, going down to 3.4 percent. Overall, industrial production rose by 3.1 percent in 2017. Among the individual industries of the manufacturing sector, vehicle production has been the top performer for the last three years. In 2017, production in this industry increased by 6.9 percent, followed by the chemical industry including the production of pharmaceutical products, which increased 5.5 percent. The production of basic chemicals only increased by 3.1 percent, however. Machinery manufacturing increased its output at a similar rate to the previous year, rising 3.7 percent. The electrical and electronics industry, following a sub-average performance the previous year, decreased production in 2017 overall compared to the previous year, dropping down 1.9 percent. The economic upturn should continue into 2018. The industrial sector without construction recorded an increase in production of 3.5 percent for the months January/February 2018 compared to the previous year, while manufacturing increased its output by an even better 5.1 percent. The purchasing managers’ index for the manufacturing sector lost ground in February and March. At 55.1 index points, however, it still indicates expanding production.

Italy: Industrial production*, Purchasing Managers Index 6

60 58

4 56 2 54 0

52 50

-2 48 -4 46 -6

44 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Spain In Spain, industrial production has increased for the 17th quarter in succession. Production pointed upwards consistently last year. Following a rise of 1.8 percent in the first quarter compared to the previous year, growth continued to accelerate each quarter, reaching five percent in the fourth quarter. Overall in 2017, industrial production thus increased by 3.1 percent. Among the individual industries, production in machinery manufacturing grew the most, at 6.5 percent. The chemical industry also performed very well, rising 4.5 percent, though in combination with pharmaceuticals this figure was down to 4.3 percent. In the electrical and electronics industry, production turned around following a drop in the previous year, going up 3.6 percent. Vehicle production was down slightly, though considering that the industry has been growing robustly for the past three years this is a sign of production returning to normal levels rather than activity levelling off. Spain’s industry is set to grow further in 2018, although perhaps not quite at the same robust pace as one year ago. In the months January/February 2018 compared to the same period last year, production in the industrial sector without construction grew by 1.9 percent, and by 3.2 percent in manufacturing. The purchasing managers’ index for manufacturing indicates further expansion in production. The index in February 2018 was only slightly lower than the highest level of 56 index points recorded last year. Although it dropped somewhat more than one index point in March it is still indicating further expansion.

Spain: Industrial production*, Purchasing Managers Index 6

58

56 4

54 2 52

0 50

-2

48 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

United Kingdom In the United Kingdom, industrial production (industrial sector without construction) increased by 2.1 percent over the previous year. The pace of growth picked up substantially compared to the previous year. The manufacturing sector expanded production even more, rising 2.8 percent. Among the larger industries, machinery production performed the best, surging up by 7.7 percent. This is the strongest increase in six years. The electrical and electronics industry increased production by 4.8 percent, a good result after two years of meagre growth. The chemical industry produced 3.5 percent more than last year, although pharmaceuticals dragged the result for the combined industry down to just 0.4 percent growth. Vehicle production ended the year 2017 with figures just negligibly higher than last year. At the start of 2018, UK industry continues to point upwards. In industry overall, production in the first two months of the current year increased by 1.7 percent compared to the same period last year. Manufacturing was even stronger, increasing output by 2.4 percent in the same period. The purchasing managers’ index for manufacturing has slipped slightly from the levels registered at the end of 2017 but has been steadily at a level indicating expansion for the last three months.

United Kingdom: Industrial production*, Purchasing Managers Index 6

60

58 4 56

2

54

52 0 50

-2

48 2014

2015

Industrial production (left axis)

2016

2017

2018

Purchasing Managers Index, seasonally adjusted (right axis)

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Source: Macrobond

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Global trade Global trading activities increase more than in the last six years Global trading activities in 2017 increased more than they have in the last six years. According to the CPB Netherlands Bureau for Economic Policy Analysis, the global trade volume in 2017 increased by 4.5 percent compared to the previous year. The pick-up, which set in at the start of 2017, began with an increase of 3.9 percent in the first quarter and went on to reach 5.1 percent in the third quarter. Although growth tapered off slightly at the end of the year, at 4.7 percent it was still above the average for the year. The emerging economies increased their exports by 4.9 percent in 2017. Among the individual regions, the Central and Eastern European economies expanded their exports the most, surging up 9.8 percent. The Asian emerging economies also increased their exports at an above-average rate of 5.9 percent. While exports from Latin America rose 3.6 percent, exports from Africa and the Middle East dropped for the first time in three years (down 1.2 percent). The advanced economies increased their exports by four percent overall compared to the previous year. This was the strongest increase seen since 2011 with a growth rate of 5.1 percent. Japan in particular increased its exports significantly, going up 6.7 percent. Exports from the US were also above average, increasing by 4.1 percent following a weak two-year period. The euro area exported 3.8 percent and the rest of the advanced economies 3.4 percent more than one year previously. On account of its higher share of global exports, the growth contribution of the advanced economies was higher than that of the emerging economies for the first time since 2011.

World: Exports according to region of origin advanced economies

6

emerging economies 5

4

3

2

1

0

-1 2014

2015

2016

2017

2018

Index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Development of German exports With an increase of 5.5 percent compared to the previous year, German exports grew more in the first quarter 2017 than they have in the last two years. In the further course of the year, exports continued growing steadily to 8.2 percent. For 2017 as a whole, exports increased by seven percent over the previous year after seasonal and working-day adjustment. In terms of destination, exports to the euro area, which increased by 7.6 percent over the previous year, contributed most to the rise in exports, adding 2.8 percentage points. Exports to the other EU member states only rose by a below-average 5.8 percent, as did exports to the US which increased by 5.5 percent. Exports to Asia increased by seven percent. This was the strongest increase since 2012. Exports to the rest of the world increased 8.1 percent. After two years of decline and two further years of stagnation, the base effect is one factor behind the strong increase. In the first two months of the current year, the growth in exports has lost a little momentum. Compared to the same period last year, exports increased by 4.9 percent which is not as strong as they were at the start of 2017. Exports to Asia and the euro area rose more than average, and to the rest of the EU states slightly less than average. Exports to the US even dropped 4.4 percent year on year. Based on estimates of the BDI member associations, we expect Germany’s export of goods to increase by three percent for 2018 overall. Including the trade of goods and the export of services, we expect exports to increase by five percent in real terms.

Germany: Exports according to region of destination remaining countries Asia USA non Euro area Euro area

12 10 8 6 4 2 0 -2 -4 2014

2015

2016

2017

2018

Index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Bundesbank, own calculations

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Industrial sectors in Germany Aluminium industry: production levels for 2017 positive overall In 2017, Germany produced around 1,313,000 tonnes of aluminium, which is 3.4 percent above the previous year’s level. Production in this industry is divided into recycled aluminium (58 percent) and primary aluminium (42 percent). While the production of primary aluminium increased marginally, by 0.6 percent, recycled aluminium recorded a robust increase in production of 5.6 percent. The production of semi-finished aluminium products (rolled goods, extruded products, conductors and wires) in 2017 dipped by 0.5 percent, down to 2,467,000 tonnes. The industry supplies all major industrial sectors and the construction industry. Sales to the transport sector showed particularly strong growth. The largest customer group of German semi-finished rolled aluminium goods in terms of volume are aluminium rolling mills. The production of rolled products made of aluminium in 2017 overall amounted to 1,861,000 tonnes. This is a decrease of 1.4 percent over the previous year. The producers of extruded products reported a rise in production of 2.4 percent (584,000 tonnes). Aluminium processing companies in Germany produced a total of 347,000 tonnes in 2017. This corresponds to an increase of 2.9 percent over the previous year. These companies produce foil, thin ribbon, tubes, aerosols and other cans as well as metal powder. The main buyer for aluminium processing is the packaging sector. 2017 was thus a positive year overall for the German aluminium industry. Cautious optimism for 2018 as risks rise The companies in this sector view their current situation (first quarter 2018) and prospects for the next six months as positive. However, trade policy risks in particular are increasing tangibly in response to the ever new interventions of US President Trump. These include his import duties of ten percent on aluminium, punitive duties against China and the most recent sanctions against Russia. Companies need planning security and open markets in order to offer the best solutions in a competitive environment. Current trade policy is not doing anything to facilitate this. On the contrary, trade interventions can endanger the supply security of the entire industry. Despite these uncertainties, the prospects for 2018 as a whole are cautiously optimistic. Overall, the industry expects a slight increase in production. Exports Exports were an important pillar for companies in the German aluminium industry in 2017, particularly for producers of semi-finished aluminium products. Exports in this sector increased by 1.3 percent overall, doing particularly well within the EFTA (up 33 percent), Africa (up 58 percent) and Central and South America (up 37 percent). Exports within the EU28 remained largely stable.

Contact: Dr. Andreas Postler / Phone: +49 211 4796 118 / Mail: andreas.postler@aluinfo.de

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Automotive industry Production In 2017 German carmakers increased their global production by seven percent up to 16.5 million passenger cars – a new record high. This means that around every fifth car worldwide belongs to a German brand. Domestic production reached a volume of 5.65 million passenger cars, which corresponds to a slight reduction in terms of volume of two percent, caused above all by a relocation of models abroad. At the same time, sales of German carmakers increased by five percent to 331 billion euros. Factors prompting the high growth in sales are the dynamic upturn in the commercial vehicles sector and the growing trend towards higher-segment cars. New model generations triggered growth in unit numbers in the premium sector (up 14 percent) and executives (up seven percent). For 2018, we are currently expecting domestic production to decrease by two percent to 5.53 million passenger cars. Besides the changed value-added structure of models on a regional level, this estimate is based on the moderate growth in exports caused also by the UK market cooling down. The positive overall economic situation generates additional goods traffic. The German market for heavy-duty and light commercial vehicles should grow by two percent this year. Booming online trade and new models are boosting the demand for vans in particular. In Western Europe new registrations of trucks up to six tonnes rose by six percent in the first two months. German companies continue to view the current situation in the commercial vehicle industry as excellent, while prospects are cautiously positive. Capacity utilisation at 95 percent is well above the long-term average. The proportion of diesel vehicles in production has dropped by eleven percentage points down to 35 percent so far this year. This has boosted the share of petrol vehicles up by eight percentage points to just under 60 percent. Every thirtieth car rolling off German production lines in the course of the year so far was an electric car; in absolute terms, new electric vehicle registrations increased by over one third. The German automotive industry is thus one of the frontrunners in this key emerging market – the proportion of electric cars in Western Europe is still much lower at 2.1 percent. Exports Foreign trade remains the key success factor for the German automotive industry in 2018 once again. The proportion of exports increased again slightly in the first quarter to over 77 percent. Exports are lagging six percent behind last year’s figures, partly on account of the early Easter holidays. In the first two months, German passenger car exports decreased to the two most important partner countries, the United Kingdom (down five percent) and the US (down twelve percent). These drops were not compensated by the growth in exports to Asia (up 24 percent). Factors for the moderate development are the strong euro, the increasing local production facilities of German carmakers and Brexit. Provided that no protectionist measures are taken on the other side of the Atlantic, we expect exports to slip slightly in 2018, down to 4.29 million units. This fits with the fact that the export prospects of companies in the automotive industry have been declining for two months, but the most recent figures still put them at somewhat better than neutral.

Contact: Dr. Manuel Kallweit / Phone: +49 30 8978 423 30 / Mail: Kallweit@vda.de

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Construction industry: growth to continue in 2018 The Central Federation of the German Construction Industry (HDB) is expecting construction industry revenue to grow by well over five percent in 2018 in nominal terms and around 1.5 percent in real terms. The industry will thus not be able to fully maintain the 2.5 percent pace of growth seen in 2017, but 2018 will still mark the sixth consecutive year of price-adjusted growth for the industry. This forecast also reflects the current mood in the industry. In the first quarter of 2018, the business climate again exceeded the record highs of the previous year. And, very importantly, despite the persistently positive evaluation of the current situation, business prospects for 2018 are also largely rated as positive. As in the previous years, residential construction is set to grow the most. The positive environment of the last few years for new construction (low mortgage rates, high migration to urban areas, rising disposable income of private households, high rental yields) still holds. In 2017 orders increased by five percent, and at the start of 2018 they have risen even higher. Revenue in residential construction should increase again by six percent in nominal terms in the current year. The weak phase in commercial construction ended in 2017 and the trend should remain positive in the current year with nominal growth of well over four percent. Excess demand for office property, the high capacity utilisation in industry and stable economic growth led to an increase in orders of 6.9 percent last year. Orders on hand at year-end were even 16 percent higher than one year previously. We also expect public construction to continue its upward trend, with nominal revenue increasing at the same level as commercial construction, at well over four percent. On account of the hike in federal investment in transport infrastructure, 900 million euros more are available this year than last year. After a faltering start, the municipal investment promotion fund will have a positive impact on construction measures at the municipal level. Public construction registered the highest increase in incoming orders, with an increase of 7.2 percent compared to the previous year. Orders on hand at year-end were even 20 percent higher than one year previously. The construction job market has also been on a steep upward curve for years. The average number of workers in the construction industry in 2017 was 812,000 – a figure that considerably exceeded our expectations and was almost four percent higher than the previous year. This means that since the trough in 2009, the industry has created more than 100,000 new jobs. In view of the expected increase in production we expect to see a further increase in the workforce this year of around 16,000 persons to 828,000.

Contact: Heinrich Weitz / Phone: +49 30 2128 6144 / Mail: heinrich.weitz@bauindustrie.de

Building materials industry 2017 was a successful year overall for the building materials industry, with production increasing by 3.2 percent in real terms. Positive factors here were both the high demand for residential construction and markedly increased public sector investment in infrastructure. Demand was particularly buoyant

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

in the sectors natural stone, gravel and sand and in the concrete-related sectors (cement, aggregates, ready-mixed concrete). In view of the disproportionate increase in new construction activity, the renovation-related sectors did not perform as well. The current situation is still viewed as good according to the ifo business climate index for the manufacture of other non-metallic mineral products which at 41 points is currently only slightly below its all-time high. This optimism is also reflected in the latest figures for production, which show a 5.2 percent increase in real terms in January/February 2018 compared to the same period in 2017. The prospects for the further course of the year remain positive although demand is likely to taper off slightly. The trend in building permits has weakened for several months already in the majority of sectors in the construction industry. The business prospects for the building materials industry have accordingly dropped significantly (current level: plus 13 points; October 2017: plus 22 points). All in all, the German Building Materials Association (bbs) is forecasting a production increase of around two percent in 2018. A decisive factor in the further development of the construction industry and the construction materials industry is whether - as announced in the coalition agreement - the political parameters, particularly in residential construction, are improved, and legal measures to speed up construction projects are taken. Foreign trade should also make a moderate contribution to the upward trend in production, as the European construction industry is continuing to revive. One should bear in mind, however, that on account of its high transport costs and relatively demand-oriented supply, foreign trade is only of real importance to part of the building materials industry. Around 14 percent of the industry’s total revenue is generated by sales abroad. The continuing overall favourable economic prospects for the building materials industry are likely to trigger another moderate expansion of investment in 2018. Expansion will be the primary motive for investment. The workforce of the industry is also expected to increase slightly.

Contact: Christian Engelke / Phone: +49 30 7261 999 29 / Mail: c.engelke@bvbaustoffe.de

Chemical industry: strong performance in 2017 provides good basis for 2018 2017 was a successful year for the German chemical and pharmaceutical industry overall. After a weak start to the year, growth accelerated unexpectedly fast in the second half of the year. The last quarter of the year was particularly strong. All in all, production grew by 2.9 percent in 2017 with prices 3.2 percent higher than one year previously. Revenue for the industry thus increased by well over six percent to more than 195 billion euros. Almost all sectors contributed to this positive development. In the first months of 2018 the positive trend of the final quarter of 2017 continued. Production levels were seven percent higher in the first two months of 2018, year on year. The robust demand both at home and abroad enabled companies to pass increased costs on to their customers. Producer prices rose sharply. Revenue also recovered further. Chemical products “made in Germany” were in high demand everywhere. Demand from the industry’s home market, the EU, picked up again especially strongly.

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Outlook: Strong tailwind into 2018 In view of the continuing good global economic situation and the stable upturn in Europe, companies are optimistic about the further course of business. They are expecting business to be good well into the second half of the year. This confidence is also reflected in employment and investment. The good level of industrial activity in Germany and Europe is fuelling the German chemical industry. The chemical industry both in Germany and in the EU as a whole should show robust production growth this year too. Both domestic and European sales should thrive. The prospects for exports overseas are also positive. The economy in the United States has begun to pick up pace. The Japanese economy is still running smoothly and China’s economy is also looking robust. Positive momentum is also coming from the emerging economies. Brazil appears to have climbed out of recession. The prospects for the other Latin American and Asian countries are good. All in all, demand for chemicals is thus set to rise steeply this year. Nonetheless, some risks for further development remain. These are mainly the political risks of a hard Brexit, rising protectionism and geopolitical hotspots. Overall, the German chemical industry should see its upward trend continue in 2018. The German Chemical Industry Association (VCI) expects to see strong growth of 3.5 percent in the production of chemicals this year. Chemical prices are only likely to rise slightly due to stable commodity prices (up one percent). The industry’s revenue should rise on the back of high demand by 4.5 percent to 204.5 billion euros. Domestic sales and foreign sales are expected to grow with similar momentum.

Contact: Christiane Kellermann / Phone: +49 69 2556 1585 / Mail: ckellermann@vci.de

German electrical and electronics industry ready for further growth following record year The German electrical and electronics industry started off the year with growth in all economic indicators. In January and February 2018 price-adjusted production rose by 6.3 percent over the previous year. Nominal revenue exceeded last year’s figure for the same period by 8.1 percent, with domestic and foreign sales contributing equally. Incoming orders recorded an 8.9 percent increase in the first two months of the year (Germany: up 4.2 percent, abroad: up 12.9 percent). Capacity utilisation for the German electrical and electronics industry was at 87.8 percent at the start of the second quarter 2018, which is almost five percentage points above its long-term average. Orders on hand most recently amounted to 4.1 production months. With 21,000 workers added last year, the size of the industry’s workforce at currently 872,000 is the largest it has been for 16 years. The business climate still indicates good sentiment in the industry. Last year, price-adjusted production increased by 4.5 percent. The industry’s revenue increased by 7.3 percent to reach a new all-time high of 191.5 billion euros. Incoming orders registered an increase of eleven percent. The positive upward trend in the industry is expected to continue in the further course of the year. According to the latest business survey of the German Electrical and Electronic Manufacturers’ Association (ZVEI), six of every ten companies in the industry are anticipating more than four percent higher sales and almost all other companies surveyed are expecting more than two percent higher sales. For 2018 overall, ZVEI expects price-adjusted production to grow by three percent.

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Electrical and electronic exports set new record German electrical and electronic exports got off to a vibrant start in 2018. In the first two months combined, they increased by 6.8 percent year on year to 33 billion euros. Last year overall, the industry’s exports (including re-exports) reached a total of 199.5 billion euros (up 9.6 percent) to set a new record for the fourth consecutive year. Exports to China, the top destination for exports, surged up 17.4 percent to 19.1 billion euros. The second and third largest buyers, the US and France, imported 17.1 billion euros (up 5.6 percent) and 12.9 billion euros (up 7.6 percent) worth of German electronic goods respectively. The export prospects of German electrical and electronics companies have not shown a clear trend in the last few months. After prospects dropped tangibly in March – probably not least due to the escalating global trade conflicts and the surprisingly strong rise the previous month – they picked up again markedly in April. On balance, they are still clearly pointing upward. ZVEI is expecting exports to exceed the new record level of 2017 this year, provided the global economic environment remains favourable.

Contact: Jochen Schäfer / Phone: +49 69 6302 332 / Mail: schaeferj@zvei.org

Foundry industry in advanced economic upturn Sentiment among German foundries at the end of March 2018 was divided. Current business was rated as very positive. Demand in most casting-intensive sectors of machine building such as agricultural technology and the machine tool industry remains very vigorous. The same is true of other sectors such as hydraulics and robotics and automation. In the industry’s key customer group, the automotive industry, demand is still high. As already indicated in the last industry report, some sectors will find it increasingly difficult to achieve further growth. In 2017, the production of cast components increased by almost four percent. In the first two months of 2018 production increased by around seven percent against the same period in 2017 after calendar and working-day adjustment. A comparison of the last three months compared to the prior three months also shows gains. All material groups were able to expand production at the start of 2018 year on year. The 600-odd companies operating in the industry currently employ around 80,000 workers according to a survey by its trade association BDG. New hires were only made with caution and where strictly necessary. Prospects for the next six months have dropped (as gauged in March 2018). This is probably due to increased commodity prices and the talk of protectionist measures abroad. For the year 2018 overall, the chances are good that the production of casting components will be slightly higher still than in 2017. Export prospects for casting components generally positive In 2017, the revenue of the foundry industry increased by over six percent to 13.2 billion euros. Foreign sales were even more dynamic, stepping up by almost nine percent (approx. 4.5 billion euros). Sales to customers outside the euro area showed double-digit growth. The proportion of exports remained unchanged at 34 percent. Export prospects as of March 2018 have improved steadily since the summer

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

months of 2017. However, only 20 percent of companies surveyed are expecting further increases in production. Over two thirds are preparing for production to stabilise at the current level. It should be noted here that around 80 percent of cast components produced in Germany are end-used abroad. Indirect exports via the German automotive and machinery industries are therefore a powerful influencing factor. The trend to relocation in the OEM sector and the debate about punitive duties are having a restricting impact here.

Contact: Heiko Lickfett / Phone: +49 211 6871 214 / Mail: heiko.lickfett@bdguss.de

Glass industry: positive economic trend confirmed The glass industry trended positively in 2017. The price-adjusted production value increased by 2.5 percent over the previous year. Total industry revenue rose by 3.4 percent with growth momentum coming largely from other countries in Europe. Total foreign revenue increased by 7.2 percent year on year, with around 2.8 percent of the increase coming from sales within the euro area and as much as 12.1 percent from outside the euro area. Domestic trade also trended positive but less than foreign trade, recording an increase of 0.7 percent compared with the previous year. Almost all sectors of the industry are benefiting from the current stable economic environment, particularly the flat glass, glass finishing, glass containers, fibre optics and special glass industries. The positive trajectory in foreign sales is also reflected in the foreign trade balance of the industry. In 2017, trade in glass and glass goods generated an export surplus of 988,000 tonnes or 1,152 million euros. Exports increased by 2.5 percent in terms of tonnage and 5.6 percent in terms of value. Imports, on the other hand, dropped by 3.7 percent in tonnage and 3.2 percent in value. This apparent contradiction indicates that increasingly higher-quality products are being imported. The glass industry got off to a vigorous start in 2018 both at home and abroad. Overall, the glass industry is presenting a very stable and positive picture. This is further reinforced by the largely positive early indicators in the key customer groups (construction, automotive, food, pharmaceuticals, cosmetics).

Contact: Dr. Johann Overath / Phone: +49 211 4796 134 / Mail: overath@bvglas.de

Real estate The real estate industry provides three million workers with a secure job in Germany. The industry generates around 18 percent of German gross value added and manages real estate assets of 11.2 billion euros including land. Last year, once again, the industry proved itself a stable anchor of German industry and one of the largest and most important sectors in Germany. Despite the increasing shortage of residential and commercial property and the all-time high demand for property investments, the property markets in Germany posted stable development. In its spring report, the ZIA German Property Federation announced preliminary results of 58.1 billion euros worth of revenue on the commercial property market in Germany last year. This corresponds to

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

a significant increase of 9.8 percent over last year. Again, a large part of the invested capital (42 percent) flowed into office property, underlining the key importance of this market segment for the domestic property market. Residential rents increased slightly more than last year, going up by 4.3 percent (2016: up 3.1 percent), while the increase in purchase prices for residential property, at 7.9 percent, went up less than it did last year (2016: up 8.8 percent). In 2018, the real estate industry requires improved political parameters to deal with the high demand for residential property in metropolitan areas. Longwinded permit procedures and bureaucratic hurdles are still standing in the way of a greater supply of housing. The new building campaign announced in the coalition agreement is therefore an important step to easing the pressure on the property markets. At the same time, the focus should not be only on residential property markets. ZIA’s spring report also shows a dramatic shortage of office space emerging in many metropolitan areas and large cities. With office space in Munich, Stuttgart and Berlin already effectively fully let, the office property markets in Cologne and Hamburg are also approaching the three-percent threshold of effective full occupancy. Policymakers thus need to take sufficient account of office property in urban development. Failing to do so will mean that on top of a shortage of residential property, office property will also soon become very scarce, which would impact the economic vitality and attractiveness of German cities. In 2018, it will again be important to improve the parameters for commercial property. The focus will increasingly need to be on city logistics. The German noise prevention code, TA Lärm, and the unequal treatment of traffic and industrial noise are a decisive stumbling block in the development of inner city logistics and the successful coexistence of residential and commercial use. Attention also needs to be paid to retail property. These are at a clear competitive disadvantage to online trade due to factors including rigid product range restrictions and longwinded planning and approval procedures. Cities need holistic growth as this is the key to modern and sustainable urban development policy.

Contact: AndrĂŠ Hentz / Phone: +49 30 2021 585 23 / Mail: andre.hentz@zia-deutschland.de

Ceramics industry The fine ceramics industry trade association BVKI reported revenue growth of 1.9 percent for the industry in 2017. The year was extremely mixed for the individual subsectors of the ceramics industry Dinnerware and decorative ceramics suffered a drop in sales of around three percent in 2017, with demand rather weak in its key European home market. The positive trends in other markets such as Asia (South Korea) and the Arab Gulf states were not sufficient to compensate for the weak performance of the EU market. Incoming orders received so far this year currently show a more vibrant momentum in the demand for professional dinnerware than for traditional household dinnerware. Overall, the number of incoming orders is lagging slightly behind the corresponding figure for the previous year, so we are currently expecting a similar result to last year. The traditional dinnerware producers recorded a slight dip in sales last year. Traditional key markets such as Russia are still not back to their full potential. 2018 has got off to a good start so far, although incoming orders have since tapered off slightly. A solid forecast on the further course of this year is not possible at this time.

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

Technical ceramics increased its revenue over the previous year by 4.4 percent, with very mixed trends within the sector. While medical ceramics have been expanding for years, ceramic insulators have had a rather difficult year. So far, the figures for incoming orders for technical ceramics overall indicate expansion so we can expect to see a steady upward development in the next few months. In principle there are many economic risks facing the fine ceramics industry that could be detrimental to the further course of business in 2018. With exports accounting for well over 50 percent of revenue, the ceramics industry, too, is worried about rising protectionist trends in global trade. The high energy and labour costs in Germany create a significant competitive advantage for competitors from abroad. It is only through innovation, reliability and high quality that the German ceramics industry can succeed in the face of the intense international competition. Buoyed largely by the economic momentum in technical ceramics, we expect to see revenue grow slightly for the industry as a whole.

Contact: Philipp Pickelmann / Phone: +49 9287 808 25 / Mail: pickelmann@keramverband.de

Machinery production: 2017 first year of upturn 2017 was a better year for German machinery production than originally anticipated by the economists of the German Mechanical Engineering Industry Association (VDMA). Price-adjusted production increased by 3.9 percent over 2016. This brings an unusually long period of sluggish demand that lasted from 2012 to 2016 to an end. However, growth impetus again emanated exclusively from abroad last year. Exports grew across many regions, rising in 2017 overall by 6.7 in real terms and 7.9 percent in nominal terms. The highest growth was seen in exports to China (up 23 percent), from the US (up twelve percent) and – not least due to the heavy weight – from the EU partner countries (up five percent). The increase in production was also visible in capacity utilisation rates. In January, capacity utilisation was at 87.9 percent, after having remained below the average level of 85.9 percent almost continuously from autumn 2012 to April 2017. 21 percent of companies are meanwhile experiencing a shortage of materials, which is however typical in the first year of an upturn. More worrying is that 22 percent of companies also reported having difficulty in finding skilled labour, which is certainly not only due to the favourable economic environment. The fact that 13 percent of companies surveyed said that they could still produce more if they had more orders clearly shows that the upturn has not yet reached all machinery producers. Five percent production increase in 2018 VDMA has upwardly revised its production forecast for the current year from an increase of three to five percent. Incoming orders have been very good for some time now. Last year, production went up by eight percent compared to 2016. In the first two months of the year, production even increased by as much as 13 percent. One of the factors behind this vibrant momentum is domestic orders, which have picked up pace at last. In the last quarter of 2017, they surged up 14 percent year on year and have retained this level of growth in the first two months of this year as well. This means that the hope

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

of the VDMA economists that domestic business will finally contribute to growth has materialised. Demand has even exceeded expectations. Foreign orders are also continuing their good run – both from countries in the euro area and those outside the euro area. As orders are not recorded according to the individual countries, we can only speculate here which countries are responsible for the strong performance. Orders from the US, the industry’s largest export market, should continue to expand. The income tax reform and, not least, the option of writing down material and equipment immediately and in full will further boost demand for machinery in the months to come. Despite all the good news, there are also risks pertaining to the forecast five percent increase in production. These are above all geopolitical problems. An enormous risk here, without a doubt, are protectionist tendencies.

Contact: Olaf Wortmann / Phone: +49 69 6603 1373 / Mail: olaf.wortmann@vdma.org

Nonferrous metal industry The German nonferrous metal industry is starting out 2018 with optimism. With 108,000 workers employed in 655 companies, the industry produced 8.6 million tonnes in 2017 (0.8 percent more than the previous year). Revenue in 2017 for the metal producing and processing companies was up ten percent to 51 billion euros, buoyed by the metal price increases on the stock markets. The industry generated 53 percent of its revenue in Germany, its most important market. The nonferrous metal industry is divided into the following stages of the value chain: production (raw metal), semi-finished products (ribbon, sheets, rods, profiles, pipes and wire), further processing (foil, thin ribbon, tubes, aerosol cans, other cans and powder), casting and hot-dip galvanising. The aluminium industry produced around 1.3 million tonnes of raw aluminium, three percent more than the previous year. Producers of semi-finished aluminium products decreased their production by 0.5 percent to 2.5 million tonnes. Production in the aluminium further processing sector increased by three percent to 347,000 tonnes. In base metals (copper, zinc, lead, nickel and tin), production increased year on year by three percent to 1.3 million tonnes. The producers of semi-finished base metal products, on the other hand, recorded a production dip of one percent to 1.9 million tonnes. The nonferrous metal foundry industry had another record year in 2017, producing just over 1.3 million tonnes of cast parts, one percent more than in 2016. For 2018, the nonferrous metal industry is expecting production to grow by one percent or just over one percent compared to the previous year. United Kingdom remains most important export market, with US ranking tenth The foreign revenue of the nonferrous metal industry in 2017 amounted to 24 billion euros. This corresponds to an export quota of 47 percent. Germany is a net importer of crude metal and net exporter of semi-finished goods. Germany therefore imports considerably more metal than it exports, reflecting the dependence of German industry on imports from abroad of metals such as aluminium, nickel, zinc, tin and several rare metals. Metal imports in 2017 decreased by two percent over the previous year to 4.2 million tonnes. Metal exports rose by five percent to 917,000 tonnes. Exports in the export-oriented semi-finished products industry maintained the 2016 level of 3.3 million tonnes. Imports in this sector were up two percent to 2.2 million tonnes. The aluminium industry is very concerned about the current protectionist trends in the United States. These could cause considerable distortions on the market. In 2017 the United Kingdom was again the second largest market, after the domestic market, and the most important export market for the German nonferrous metal industry. Eleven percent of metal and

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

semi-finished exports were destined for the UK. In 2016, German exports of nonferrous metal and semi-finished products to the UK amounted to 474,000 tonnes. A large proportion of this was semifinished products, mainly aluminium. The United States was the tenth biggest export market for metal and semi-finished products in 2017 making it the most important destination outside of Europe. Four percent, or 159,000 tonnes, of the industry’s exports went to the US. Exports were thus slightly higher than the previous year (up 0.5 percent). The German nonferrous metal industry delivered about the same volume to domestic industry customers who, in turn, exported to the US.

Contact: Oliver Eisenberg / Phone: +49 30 7262 071 67 / Mail: eisenberg@gdb-online.org

Steel and metal processing: 2017 successful year with production up six percent. Good start to 2018 with an increase of 5.7 percent 2017 was a very good year for steel and metal processing companies with a production increase of six percent. The industry also got off to a good start in 2018 with production rising by 5.7 percent in the first two months. While last year’s increased demand came equally from home and abroad, sales to foreign customers (up seven percent) are currently outperforming exports, which increased by three percent in January and February. The current trend in incoming orders however signalises that foreign demand will be stable at the very least in the further course of the year. Production is therefore set to expand once again in 2018, by around four percent. Buoyed by the current upward trend in revenue, sentiment in the industry is excellent. The assessment of the business situation is stabilising at a record level of 60 balance points. Companies are however increasingly sceptical or at least cautious about the next six months. According to the latest figures, the majority of companies surveyed do not believe that business will improve further. One reason for the more subdued look into the future is the threat to free global trade presented by the unilateral import duties on steel and aluminium announced by the US, which could easily develop into a trade dispute. The EU has already initiated an investigation to protect its steel market against any rerouted import flows. This could have a hugely negative impact for the processing industries. The more cautious attitude of companies could lead to more reticence in making investments. While the utilisation of production capacities increased to over 87 percent, companies are still opting to invest in personnel rather than in plant and equipment in order to avoid long-term capital lock-ups, following their experience from the previous crisis. The workforce in the industry increased by 1.8 percent last year which corresponds to around 8,000 jobs.

Contact: Holger Ade / Phone: +49 233 1958 821 / Mail: hade@wsm-net.d

Textile and clothing industry Das In 2017, revenue in the industry increased by a total of 1.8 percent compared to the previous year thus meeting expectations. However, the textiles and clothing segments on their own present a more differentiated picture:

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Industry Report | Industrial production and trade in the individual industries 17/05/2018

After rather weak results in 2016, revenue in clothing turned around this year, growing by 2.5 percent, and thus outperforming the original forecast of 1.5 percent. High growth set in particularly towards the end of the year, despite the very good figures from the respective months in the previous year. Revenue in textiles could not keep up with last year’s growth, falling well below the original forecast of two percent at 1.3 percent. Since the end of 2016, the increase in revenue has only just been on positive territory, although a slight pick-up was noticeable towards the end of last year. A look at the individual segments of the textile industry shows that all segments apart from technical textiles and particularly carpet production were able to gain considerable ground. The high increases achieved in technical textiles over the last years were not maintained in 2017 with only average growth even in the growth segment of non-wovens. For both textiles and clothing, the contribution to revenue from abroad was higher than domestic revenue. This highlights the importance of foreign business for the whole industry. The difference was particularly clear in textiles, where the domestic contribution to revenue growth in 2017 was even slightly negative. Even though the clothing segment continued to benefit from the good shape of the economy at home and domestic sales contributed majorly to the good sales performance, both the EU and the rest of the world remain decisive for the German clothing industry. Employment figures for the sector in Germany for 2017 were up by 0.8 percent. This means that around 119,000 employees in Germany were working in the textile and clothing industry, which is around 1,000 more than one year previously. Employment figures have trended upwards in the last few years. For three years, there has been a moderate but steady growth in domestic workforce numbers, going against the long-term trend. Exports were unusually positive on account of the exceptional surge in clothing, with exports going up 17.7 percent. It should be remembered however that this increase is mostly purely statistical due to a change in the calculation methods. Textile exports also increased, going up 2.6 percent. Clothing exports increased in the key countries and regions, even without these one-off effects. Turkey is once again cause for concern. However, export prospects to Russia seem to be recovering again. The US and the United Kingdom have so far proven resilient to crisis. The EU internal market remains the most important export market for the industry. Prospects The slight but stable upward trend in clothing continues. Textiles is only slowly catching up with the positive general economic trend, although sentiment in the textile companies has improved marked-ly since 2016. Overall, the industry is cautiously optimistic about 2018.

Contact: Marcus Jacoangeli / Phone: +49 30 7262 2024 / Mail: mjacoangeli@textil-mode.de

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Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu Author Thomas Hüne T: +49 30 2028 1592 t.huene@bdi.eu

Editorial / Graphics Dr. Klaus Günter Deutsch T: +49 30 2028 1591 k.deutsch@bdi.eu Marta Gancarek T: +49 30 2028 1588 m.gancarek@bdi.eu

This Industry Report is a translation based on “Industriebericht – May 2018” as of 02 May 2018.

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Industrial Policy Dossier 05/2018  
Industrial Policy Dossier 05/2018